PVC and Chlor-Alkali In a Vibrant Region

PVC and Chlor-Alkali In a Vibrant Region Joel Lindahl Director, Chlor-Alkali & Vinyls Americas Foro PEMEX Petroquímica Junio 2011 1Singapore Shanghai Bangkök Houston New York London Düsseldorf Dubai

Latin America A Growing Pie All Other 10% 2010 GDP Contribution Brazil 50% Mexico 25% Venezuela 6% Peru 3% Chile 4% Colombia 6% Argentina 8% 2010-2015 GDP %AAGR = 4.3 2

Mexico: Vibrant Durable Growing Middle Class More stable economy, better balance Strong manufacturing base Economy Need for infrastructure Drives demand for durable materials, goods Important trade partner 3

GDP Growth Three Versions Year-over-Year Percent Change 8% 6% 4% 2% 0% -2% -4% -6% -8% 4 1990 1995 2000 2005 2010 2015 Mexico Brazil United States

Durable Goods = PVC Demand Wire & Cable 8% Bottles 2% All Others 13% Pipe & Fittings 42% Film & Sheet 16% Profiles & Tubes 19% 2010 Global Demand = 34.8 Million Metric Tons 5

U.S. Housing Starts Housing Starts, Total Privately Owned (Thousands) 2200 2000 1800 1600 1400 1200 1000 800 600 400 Source: U.S. Bureau of Census Forecast: CMAI 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 6

U.S. Total Construction Spending Index Index 160 150 140 130 120 110 100 90 80 70 60 in Recessions -6 0 6 12 18 24 30 36 42 48 54 60 Months Prior to Peak Peaks: January 1981 February 1990 December 2001 March 2006 Months After Peak 1980/82 Recession 1991 Recession 2001 Recession 2008/09 Recession Source: Federal Reserve Board Mar 11 7

Pipe Resin Vs. Housing Starts Billion Pounds, Pipe & Tubing 7.0 Thousands Units (SAAR), Housing Starts 3000 6.5 2500 6.0 2000 5.5 1500 5.0 1000 4.5 500 4.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 0 Pipe & Tubing Housing Starts 8

U.S. PVC Pipe Resin Demand Billion Pounds 7.0 6.5 AAGR = 3.1% 6.0 5.5 5.0 4.5 4.0 3.5 2005 2007 2009 2011 2013 2015 9

PVC Demand Brazil Leads Africa/ Middle East 8% Indian Subc. 6% CIS & Baltics 3% NE Asia 43% Other 22% Brazil 39% Europe 16% Latin America 6% N. America 13% 2010 World Demand = 34.8 Million Metric Tons SE Asia 5% Mexico 15% Chile 3% Venezuela 4% Argentina 6% Colombia 6% Peru 5% 2010 Latin America Domestic Demand = 2.4 Million Metric Tons 10

Latin America Less PVC Self Sufficient Over Time Million Metric Tons 3.5 Production (1.8/2.3) 3.0 Domestic Demand (6.8/4.6) 2.5 Total Capacity (1.6/1.8) 2.0 1.5 1.0 0.5 0.0 2000 2002 2004 2006 2008 2010 2012 2014 (% AAGR = 05-10/10-15) 11

Growing Vinyls Net Trade Thousand Metric Tons 300 0 Net Exports -300-600 -900-1,200-1,500-1,800 Net Imports 2000 2005 2010 2015 PVC VCM EDC 12

Who are the Players? 2011 Top PVC Producers Latin America* CAPACITY SHARE RANK COMPANY (-000- Metric Tons) % OF TOTAL 1 Mexichem 957 43.46% 2 Solvay Indupa 541 24.57% 3 Braskem 519 23.57% 4 Pequiven 185 8.40% Top 4 Total Latin America 2,202 100.00% North America CAPACITY SHARE RANK COMPANY (-000- Metric Tons) % OF TOTAL 1 SHINTECH 2,640 32.97% 2 Oxy Vinyls LP 1,693 21.14% 3 FPC USA 1,376 17.19% 4 Georgia Gulf 1,204 15.03% Top 4 Total North America 6,913 86.34% * Includes capacity in Mexico. 13

Energy Flows Most of the World Oil Naphtha Ethylene EDC VCM PVC Oil Electricity Chlor-Alkali North America & Middle East Natural Gas Ethane Ethylene EDC VCM PVC Natural Gas Electricity Chlor-Alkali China Coal Carbide Acetylene VCM PVC Coal Electricity Chlor-Alkali Pipe & Other Fabricated Products 14

Average 2010 Feedstock Slates Percent 100% Source: CMAI 2010 World Ethylene Cost Study 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% North America South America Europe CIS & Baltic States Middle East/Africa Northeast Asia Southeast Asia Ethane Propane N-Butane Naphtha Gasoil Other 15

North America Energy Price Trends Dollars Per MM Btu 20 18 16 14 12 10 8 6 4 2 Gas as % of Crude, BTU Basis 120% 100% 80% 60% 40% 20% 0 16 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Crude (WTI) Natural Gas Gas as % of Crude 0%

U.S. Ethylene Cash Cost Trends Cents Per Pound Dollars Per Ton 60 1323 50 1102 40 882 30 661 20 441 10 220 0 17 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Wt. Average Propane Butane Lt. Naphtha Purity Ethane 0

PVC Production Costs Advantage: North America! Dollars Per Metric Ton 1,300 Integrated - Asset Sharing Method 1,200 1,100 1,000 900 800 700 600 500 400 05 06 07 08 09 10 11 12 13 14 15 NAM WEP NEA * China Cash Cost (Acetylene based) * NEA excludes China 18

U.S. PVC Export Forecast 2011 40+% of Total Production Billion Pounds 1.8 1.6 Exports % of Total Production 1.4 2007 = 12.5 1.2 2009 = 25.2 2010 = 34.3 1.0 2011 Forecast = 38.5 0.8 0.6 0.4 0.2 0.0 07 Q2 Q3 Q4 08 Q2 Q3 Q4 09 Q2 Q3 Q4 10 Q2 Q3 Q4 11 Q2 Q3 Q4 Total Exports China 19

Accelerating Toward a Global Price Crude to gas ratio makes U.S. producers very competitive Export sales provide strong returns Japan effect expedites shift towards greater reliance on the export market U.S. producer pricing leverage increased When producers have options they raise prices 20

Higher PVC Prices Ahead! Regional Netback Comparison After Discounts & Freight Dollars Per Metric Ton 1,500 1,300 1,100 900 700 500 300 Higher Energy Higher Ethylene Increased Global Demand 90 92 94 96 98 00 02 04 06 08 10 12 14 NAM Contract-Market WEP Contract-Market NEA Spot 21

World PVC Capacity Additions Million Metric Tons 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 22 2007 2008 2009 2010 2011 2012 2013 2014 2015 World China

How The Chinese Do It Feedstock Products CO Calcium Hydroxide(Waste) Cement Limestone Coke Calcium Carbide Acetylene VCM PVC H O 2 H 2 Salt Chlorine HCl (Anhyd.) Power (Coal) Caustic Soda 23

PVC Carbide-Based Economics U.S. Dollars Per Metric Ton 1,600 1,400 1,200 1,000 800 600 400 200 0 Asset Share Acetylene Methodology Membrane Cell Technology -200 07 Q2 Q3 Q4 08 Q2 Q3 Q4 09 Q2 Q3 Q4 10 Q2 Q3 Q4 11 Q2 Q3 Q4 12 Q2 Q3 Q4 24 PVC Price, Integrated PVC Cash Cost PVC Margin * Prices are on delivered basis, including VAT.

Global Capacity Decelerates Chlorine Capacity, Million Metric Tons 90 80 70 60 50 40 30 20 10 0 25 1990-2004 %AAGR: 1.7 2004-2011 %AAGR: 4.9 1990 1995 2000 2005 2010 2015 2011-2015 %AAGR: 1.9

Vinyls Summary Robust demand growth in Latin America exceeds capacity in the region Imports rise to meet growth Region needs competitive ethylene Low cost in North America accelerates exports Prices rise, as do U.S. margins Globe absorbs most overcapacity by 2015 26

The Vinyls Chain- Caustic Caustic Salt Electricity Chlor-Alkali Chlorine EDC VCM PVC Ethylene 27

World Caustic Demand Inorganics 12% Water Treatment 5% Others 27% Pulp & Paper 13% Soaps/ Detergent s/textiles 15% Organics 17% Alumina 11% Other 15% Pulp 25% 2010 Global Demand = 61.1 Mil DMT Alumina 60% 2010 Global Net Exports = 4.5 Mil DMT 28

Co-Demand? Change in Demand & GDP, Year over Year 10% 8% 6% 4% 2% 0% -2% -4% -6% Difference 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% World Chlorine World Caustic World GDP Difference Between YOY Demand Change 29

Regional Production Cash Costs 2010 Operating Costs, Dollars Per ECU Metric Ton 400 350 $150 300 250 200 150 100 West Europe Membrane Asia Membrane North America Membrane Middle East Membrane 30

ECU Cash Costs New Rules Cash Costs, Dollars Per Metric Ton 600 550 500 450 400 350 300 250 200 150 100 Middle East 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USGC ECU Cash Costs NEA ECU Cash Costs WEP ECU Cash Costs CHI ECU Cash Costs 31

North America Building New Puzzle Pieces Producer Timing Capacity (-000- DMT Caustic) 2010 14,549 Added Capacity 2010-2014 Shintech Q4-2010 178 FPC Mid-2011 193 Shintech Mid-2011 530 Dow/Mitsui Mid-2013 880 Westlake 2013 250 Others Various 129 Total Announced Additions 2,160 2014 16,709 32

The Fragile Future: U.S. Caustic Production & Demand, Million DMT 14 12 10 8 6 4 2 Net Exports, Million DMT 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.6 33 Production Domestic Demand Net Exports

Latin America- More Caustic Needed Caustic Into, Million DMT Net Imports, Million DMT 5.0 3.0 Caustic into Alumina 4.0 3.0 2.6 2.2 Caustic into Pulp & Paper Caustic into All Other Net Caustic Imports 2.0 1.0 1.8 1.4 Net Imports with Announced Pulp Capacity 0.0 1.0 34

Latin America Caustic Soda 2010 Top Producers by Technology Thousand Dry Metric Tons 600 500 400 Diaphragm Membrane Mercury 300 200 100 0 35

Latin America Caustic Soda Million Dry Metric Tons 5.0 Production (1.0/3.0) Domestic Demand (3.5/5.5) 4.0 Total Capacity (1.5/1.2) Operating Rate 3.0 Operating Rate 95% 90% 85% 2.0 80% 1.0 75% 0.0 2000 2005 2010 2015 70% (% AAGR = 05-10/10-15) 36

Caustic Soda- Same as PVC? Latin America growing Imports rise to meet growth North America needs to accelerate exports Good fit! Prices increasingly globalized Trade drives price 37

Dollars Per Metric Ton Dollars Per Short Ton 1,210 1,100 1,100 Market Price Methodology 1,000 990 900 880 800 770 700 660 600 550 500 440 400 330 300 220 200 110 100 0 0-110 -100 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Contract Chlorine (Chem, FOB USGC) AAP Caustic (FOB USGC) ECU Value (AAP Cau) ECU Cash Margin 38 U.S. Chlor-Alkali Annual Economics

Conclusions Vinyls and caustic will move north to south Shale gas effect on both Latin America growth will outpace other regions Capacity won t keep pace Region awaits advantaged energy Prices increasingly globalized And rising with energy 39